Facing financial challenges in business can feel overwhelming, but it doesn’t have to be the end of the road. For many businesses, a Division I proposal offers a structured, legally supported path to recovery. It allows you to work with creditors, restructure your debt, and build a foundation for long-term stability.
Think of this as your practical roadmap: step-by-step guidance on how a Division I proposal works, strategies to negotiate effectively, and what to expect in terms of cash flow and profitability. We’re here to help you navigate this process with confidence and clarity.
Step 1: Start with a Trusted Licensed Insolvency Trustee
Your journey begins with a confidential consultation with a Licensed Insolvency Trustee (LIT); the only professional authorized to file a Division I proposal in Canada. This initial meeting helps us understand your business’s financial position, including liabilities, assets, cash flow, and operational challenges.
We’ll explore your goals, options, and whether a Division I proposal is the right fit. This conversation is about finding the best solution for your business.
Step 2: Crafting a Proposal That Works
If you decide to proceed, the next step is working closely with your LIT to draft a Division I proposal. This document is your plan to creditors explaining how you intend to restructure debt while continuing operations.
Key elements typically include:
- A full summary of debts owed and creditors involved
- The proposed restructuring terms, such as payment amounts and timelines
- Strategies to improve cash flow and profitability during and after implementation
- Supporting financial projections and business plans demonstrating viability
Our goal is to create a proposal that offers creditors a better outcome than liquidation, all while giving your business the breathing room to recover.
Step 3: Filing the Proposal and Halting Collections
Once filed, an automatic stay of proceedings takes effect. This legally protects your business by stopping all collection actions, lawsuits, and creditor enforcement activities related to unsecured debts.
This protection creates essential breathing room, so you can focus on rebuilding rather than battling immediate financial pressure.
Step 4: Negotiation and Creditor Voting
Creditors have 45 days to review and vote on the proposal. Negotiation is often part of the process, and many creditors are open to reasonable compromises to avoid more costly alternatives.
Your Trustee will represent your business in these discussions, ensuring your interests are advocated without you needing to navigate potentially difficult conversations alone.
If the majority of creditors (by dollar value) approve, the proposal becomes legally binding for all unsecured creditors, providing certainty and a clear path forward.
Step 5: Implementation and Ongoing Management
Once accepted, your business begins following the agreed payment and restructuring plan. Payments under Division I proposals are interest-free and structured to align with your cash flow capabilities.
During this phase, you’ll focus on:
- Managing operations with renewed financial stability
- Monitoring cash flow improvements and profitability targets
- Making strategic adjustments as needed, with guidance from your Trustee
This is your opportunity to rebuild your business on a solid financial footing.
The Impact on Cash Flow and Profitability
One of the greatest benefits of a Division I proposal is the positive impact on your business’s cash flow. By reducing immediate debt burdens and halting costly collection actions, you free up working capital to invest in growth and operations.
This improved cash flow can translate into increased profitability as your business stabilizes and adapts. Plus, the structured nature of the proposal allows for predictable budgeting and financial planning, which is essential for long-term success.
The Faber Advantage
At Faber, we know business recovery is about more than numbers. It’s about people, livelihoods, and community. Our experienced Licensed Insolvency Trustees provide compassionate guidance tailored to your unique situation.
If your business is facing financial stress, don’t wait. Reach out today for a free, confidential consultation. Together, we can explore whether a Division I proposal is the right solution to set your business on a sustainable path forward.
